Over the course of three days, Palantir Technologies experienced a significant decline in its market capitalization, losing $50 billion. On February 19, the company’s stock dropped by 10.1% in reaction to news regarding Pentagon budget cuts and CEO Alex Karp’s plan to sell stock. The stock continued to decline, losing an additional 5.2% and 4.6% in the subsequent trading sessions.
Palantir, widely recognized for its AI-driven software used by the U.S. military and government, had reported better-than-expected fourth-quarter results and robust guidance for the first quarter earlier in February, which led to a 23% increase in its stock price during the following trading session. In 2024, Palantir’s stock surged by 340%, making it the top performer in the S&P 500 for that year. However, the stock is currently trading at a forward price-to-earnings multiple of 178.57, significantly higher than Nvidia’s multiple of 31.45, according to Yahoo Finance data. This suggests that Palantir’s stock is valued much higher than even the most established AI companies.
Concerns have risen due to Palantir’s recent rapid growth and high valuation, especially in light of key client’s budget cuts and the CEO’s stock sale plan. Wall Street analysts predict further declines, with an average price target of $85.11, indicating a potential 16% drop from its recent closing price.
Several fund managers are already reducing their holdings in Palantir. According to Adam Turnquist, Chief Technical Strategist at LPL Financial, U.S. hedge funds slashed their Palantir allocations by 28.8 million shares in the fourth quarter of 2024.
A veteran fund manager has criticized a recent interview by Alex Karp, co-founder and CEO of Palantir, on CNBC. During his appearance, Karp discussed topics including his new book, “The Technological Republic,” and touched on figures like President Trump and Elon Musk. Doug Kass, a hedge fund manager with a career dating back to the 1970s, expressed disappointment with the interview, describing it as lacking in meaningful content and likening it to previous lackluster interviews by the network.
Following the stock’s sell-off, several analysts updated their views on Palantir. Daniel Ives, an analyst at Wedbush, maintained an “outperform” rating and a $120 price target, pointing to the company’s potential to secure more government IT spending despite current budget cuts. Ives suggested that Palantir has the capacity to evolve into a tech giant similar to Oracle or Salesforce.
On the other hand, analysts from William Blair, led by Louie DiPalma, reiterated an “underperform” rating. They noted a significant slowdown in revenue from Palantir’s U.S. government business in recent years and warned of a potential repeat. The analysts suggested that further deceleration could result in a substantial reduction in the stock’s valuation multiple and forecast a possible more than 20% downside in the years to come.
Despite the recent challenges, Palantir closed at $101.35 on February 21, remaining up by 34% for the year to date.
